CDL Hospitality Trusts - CGS-CIMB Research 2021-01-29: Road To Recovery But Volatility Remains

CDL HOSPITALITY TRUSTS (SGX:J85)

CDL Hospitality Trusts - Road To Recovery But Volatility Remains

CDL Hospitality Trusts' FY20 DPU (-45% y-o-y) came in above expectations due to capital distribution.
Singapore, New Zealand and Australia partially insulated COVID-19 impact.
Recovery remains volatile. Trading near 5-year mean. Downgrade to HOLD.

CDL Hospitality Trusts (SGX:J85)’s FY20 DPU of 4.95 cents (-45.1% y-o-y) came in above expectations at 140% of our full-year forecast. The higher-than-expected DPU was due to capital distribution of S$20m.
CDL Hospitality Trusts' FY20 revenue and NPI declined by 40% and 51% y-o-y to S$117.6m and S$69.3m, respectively. With the exception of New Zealand and Singapore hotels, most of the hotels were operating at mid-to-low occupancies or temporarily closed in FY20.
FY20 RevPAR across all countries declined by 19% points to 86% y-o-y. H-o-h comparison showed mixed RevPAR performance. CDL Hospitality Trusts’s performance was partially insulated by contribution from Singapore, New Zealand and Australia amounting to S$79.9m which was inclusive of S$45.1m in fixed rent.

New Zealand (-19% y-o-y in FY20) and Singapore (-51%, including W Hotel acquired in Jul 2020) hotels’ RevPARs were more resilient than other countries due to isolation business. While Singapore hotel’s occupancy remained relatively high at 78% (vs. 87% in FY19), CDL Hospitality Trusts' average room rate fell 46% y-o-y due to lower rate of isolation business.
As compared to Singapore, New Zealand hotel’s RevPAR performed better as it received steady F&B income from isolation business.
Countries such as Maldives and Japan saw stronger occupancy towards year-end.
UK hotels continued to be affected by lockdowns.
Germany and Italy hotels faced impairment (S$4.7m) and rent restructuring, respectively.
In Australia, a rent deferment and instalment plan was in placed to collect rent in arrears.

Going forward, recovery is expected to remain volatile. While Singapore and New Zealand (55% of FY20 NPI collectively) are likely to be supported by isolation business for most of FY21F, the resurgence of COVID-19 cases continues to affect the recovery of hotels in Japan, UK and Italy (19% of FY20 NPI collectively).
Master lease with Australian hotels (8% of FY20 NPI) will expire in Apr 2021 and it is likely to be converted into variable rent. A restructuring of the rental agreement with the lessee of the German Hotel (8.6% of NPI) is also ongoing.
CDL Hospitality Trusts' Portfolio valuation on a same-store-basis fell 5.1% y-o-y.

We raise our CDL Hospitality Trusts' FY21-22F DPU estimate by 6-15% mainly to factor in capital distribution. CDL Hospitality Trusts has undistributed capital of ~S$60m and we believe it will top up to buffer the impact of COVID-19.
See CDL Hospitality Trusts Share Price; CDL Hospitality Trusts Target Price; CDL Hospitality Trusts Analyst Reports; CDL Hospitality Trusts Dividend History; CDL Hospitality Trusts Announcements; CDL Hospitality Trusts Latest News.
While we raise target price, we downgrade CDL Hospitality Trusts to HOLD.
We believe recovery remains volatile and valuation has recovered back to near 5-year mean 0.97x P/BV.
Upside/downside risks include more capital top-up/slower-than-expected recovery.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-29

SGX Stock Analyst Report HOLD DOWNGRADE ADD 1.24 UP 1.160